With one week until Treasurer Jim Chalmers hands down his fifth budget, senior ministers have been forced to play down media reports of income offsets between $200 and $300 for everyone who pays tax.
Prime Minister Anthony Albanese wouldn't confirm Treasury advice relating to any impact on inflation by such a move.
"What I can guarantee is that certainly, we're very conscious about putting that downward pressure," he told reporters in Brisbane on Tuesday.
"We've already had $114 billion of savings in our budgets. There'll be more savings in the budget that is announced next week - this will be a responsible budget."
Opposition Leader Angus Taylor labelled the government incompetent and said Labor had lied to Australians about promising not to make particular tax changes.
"What Australians want to see is lower inflation and lower interest rates," he told reporters in Canberra.
"I've been saying for years that this government just keeps putting a band-aid on the bullet wound.
"We'll deal with the underlying problem here."
Mr Taylor said the economic environment was a time when taxpayers' money has to be spent with "enormous care".
The treasurer and Energy Minister Chris Bowen announced measures allowing employers to avoid paying fringe benefits tax on EVs under $91,387 purchased through a novated lease, which will transition to a permanent 25 per cent discount on that tax.
From April 2027, the full tax discount will only apply to EVs costing $75,000 or less, while vehicles above $75,000 but below the luxury tax threshold will only receive a 25 per cent discount.
During that same period, all EVs below the luxury tax threshold will only receive the 25 per cent discount.
The luxury tax threshold is $91,387 but rises each year with inflation.
Mr Bowen said the changes would encourage car manufacturers to focus on more affordable models of EVs.
"We certainly expected EV take-up to remain very, very strong. It's been increasing, obviously, particularly in recent months," he told ABC Radio.
The cost of the tax break to the budget has blown out in recent years from an initial $90 million to $1.35 billion in 2025/26 and had been expected to rise to $3 billion by 2028/29.
But a phased tightening of the incentive will save taxpayers $1.7 billion over four years from the 2026/27 budget.
EVs eligible for the discount will continue to be exempt from import tariffs.
Lachlan Vass and Amy Tramontozzi, researchers at independent think tank e61 Institute, identified two major flaws in the scheme.
The incentive increases with the cost of the vehicle, so encourages people to buy more expensive EVs.
Secondly, the subsidy it provides increases in line with the buyer's income, so disproportionately benefits high income earners.
Shadow treasurer Tim Wilson said large-scale offsets would only inflame the economic situation.
"We know the consequences. The IMF (International Monetary Fund) has said if you go down this path, it will fuel inflation," he told Nine's Today program.
"It will give with one hand and then take even worse and harder with another."
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